Did an out-of-state association and publisher with only mailed publications and Florida members have to collect Florida tax under the 1993 physical-presence rule?

Subject

Imputed Charge for Publications by Out of State Membership Associations Having No Florida Nexus

Plain-English summary

Under the physical-presence rule the Department applied in 1993, the out-of-state association and publishing subsidiary did not have to register or collect Florida sales or use tax. Their only Florida contacts were association members and publications sent from outside the state by mail or common carrier. They had no Florida representatives, offices, warehouses, inventory, property, or business qualification.

The ruling did not eliminate the tax. Florida members and other recipients owed the 6% use tax then imposed on the publications' cost price and had to report and remit it directly to the Department.

What this means for you

This is a historical Quill-era ruling, not a statement of current remote-seller law. Its result depended on the constitutional physical-presence framework and the complete absence of in-state people, property, or representatives described in the request.

Common questions

Q: Did the association and publisher have to collect Florida tax? No, under the 1993 physical-presence rule and stated facts.

Q: Were the Florida recipients free of tax? No. The ruling required them to self-report and pay use tax.

Q: Would an in-state representative have mattered? Yes. The ruling's case discussion treated employees and independent representatives as potential nexus-creating activity.

Citations and references

• U.S. Const. art. I, § 8, cl. 3 — Commerce Clause
• Fla. Stat. § 212.06 — use tax
• Quill Corp. v. North Dakota, 112 S. Ct. 91 (1992)
• National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967)
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 280 (1977)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-074

Original ruling text

Dec 02, 1993

Re: Technical Assistance Advisement 93(A)-074
Imputed Charge for Publications by Out of State Membership
Associations Having No Florida Nexus
Taxpayers: XXX (herein the "Organization"); FEI# XXX

Dear :

This response is in reply to your September 20, 1993, petition
for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., concerning the
captioned matter and parties. Your petition has been carefully
examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C.
Therefore, the Department is herewith granting your request for
the issuance of a TAA and the ensuing discourse shall embody
said ruling.

DISCUSSION OF FACTS

Your letter imparts the following information pertaining to the
matter under advisement herein:

"We represent the [Organization], a XXX nonprofit
corporation exempt from federal income taxation under
Section 501(c)(6) of the Internal Revenue Code, and its
wholly-owned subsidiary, [the Subsidiary], a for profit
corporation, organized under the laws of the State of
XXX....

"The [Organization] is an association with dues paying
members (`Members'), consisting of investor-owned hospitals
and health systems located throughout the United States,
including Florida. The [Organization's] national office is
located in XXX and its administrative office is located in
XXX. [The Subsidiary] is headquartered in XXX, and its
primary activity consists of publishing periodicals for
distribution to Members. All its publications are mailed

from outside of Florida, including publications sent to
Members in Florida.

"The [Organization] and [the Subsidiary] have no contact
with Florida other than the fact that [the Subsidiary]
sends publications to, and the [Organization] has, Members
in Florida. The [Organization's] and [the Subsidiary's]
only connection with its Florida Members is by common
carrier or the United States mail. The [Organization] and
[the Subsidiary] have no representatives, no office, no
warehouse, no inventory and no assets whatsoever within
Florida; they own no tangible property, real or personal,
or intangible property in Florida; nor are either of them
qualified to do business in Florida.

"Recently, the [Organization] and [the Subsidiary] have a
(sic) learned that a Mr. Jere N. Moore, Jr., Director of
Public Affairs, Training and Education, has circulated a
letter dated June 1, 1993, stating that associations
meeting certain criteria, which publish and send
publications to their members in Florida, are liable for
sales tax retroactive to July 1, 1987 on their publications
sent to Florida members; and that non-profit associations
are required to register with the Department as sales tax
dealers and collect a 6% sales tax on their publications
and send the tax to the Department, effective July 1,
1993."

REQUESTED ADVISEMENT

You endeavor to receive the following action by the Department:

"... [W]e respectfully request that you issue a technical
Assistance Advisement that [the Subsidiary] and the
[Organization] are immune under the Commerce Clause from
the requirement to register and collect Florida state
[sales or use] tax on any express or implied amounts
received by either or both of them for publications mailed
from outside of Florida to Members or other persons located
within Florida."

DISCUSSION OF LAW

In addressing your request, it is fundamental that we consult
the following body of case law with respect to ascertaining the
requisite elements to establishing nexus in a given forum state:

In the matter of Miller Bros. Co. v. Maryland, 347 U.S.
340, 344-345 (1954), the U.S. Supreme Court in construing
the Due Process Clause of the Fourteenth Amendment of the
U.S. Constitution determined that it "requires some
definite link, some minimum connection, between a state and
the person, property or transaction it seeks to tax...."

In National Bellas Hess, Inc. v. Department of Revenue of
Ill., 386 U.S. 753 (1967), the U. S. Supreme Court declined
to repudiate a distinction which had been drawn in previous
cases. That distinction was between mail order sellers who
had retail outlets, solicitors, or property within a state
and those who do no more than communicate with customers by
mail or common carrier. Those sellers who had retail
outlets, solicitors, or property within a state could be
required to collect and remit that state's sales and use
tax on their mail order sales. When a seller had no
contact with a state other than through mail or common
carrier, however, the state could not require the seller to
comply with this obligation.

Further, with respect to the Commerce Clause of the U.S.
Constitution, the U.S. Supreme Court in Complete Auto
Transit, Inc. v. Brady, 430 U.S. 280 (1977), established a
4-part test which would need to be satisfied in order for a
state tax to sustain a Commerce Clause challenge. The
first part of this 4-part test requires the tax to be
"applied to an activity with a substantial nexus with the
taxing state."

The U.S. Supreme Court in Scripto, Inc. v. Carson, 362 U.S.
207 (1960), affirmed the findings of the Florida Supreme
Court that Scripto was susceptible to the collection of
Florida use tax without violating the Due Process or
Commerce Clauses based on Scripto's systematic exploitation

of Florida markets for its products by use of independent
contractors in the state. Hence, the "minimum connections"
necessary to penetrate a seller's protection from a host
state's use tax collection requirements under the Due
Process and Commerce Clauses, respectively, are met when a
seller uses independent contractors in the forum. Further,
the reasoning of the Scripto court was followed in the more
recent matter of Tyler Pipe Inds. v. Dept of Revenue, 483
U.S. 232, 97 L Ed 199, 107 S Ct (1987), wherein the U.S.
Supreme Court affirmed the findings of the Washington
Supreme Court that the activities of Tyler Pipe's
independent representatives in the host state which
resulted in improved name recognition, market share,
goodwill, and individual customer relations did constitute
a substantial nexus. Moreover, in Tyler Pipe, the U.S.
Supreme Court reiterated its sentiments in Scripto, that
the distinction between employees and independent
representatives is so fine that it is without
constitutional significance.

Also, the U.S. Supreme Court determined in National
Geographic Society v. California Board of Equalization, 420
U.S. 551, 559 (1977), that the activities of seller's
representatives in the forum did not require a direct
connection to the sales on which the host state was seeking
collection.

The most recent U.S. Supreme Court decision interpreting
the Due Process and Commerce Clauses is Quill Corporation
v. North Dakota, 112 S.Ct. 91 (1992). In Quill, the Court
held that under the Due Process Clause, minimum contacts
with a state are present when an out-of-state seller
purposefully directs its activities towards residents of a
state, even though the seller may not have a physical
presence within that state. The Commerce Clause, however,
requires that a seller have a physical presence within a
state in order for the substantial nexus part of the
Commerce Clause 4-part test to be satisfied. Under the
Commerce Clause, therefore, a seller must be physically
present in a state in order for the state to impose an
obligation upon a seller to collect that state's use tax on

sales made to purchasers within the state.

CONCLUSIONS OF LAW

The Quill decision when applied to the instant matter, offers a
sound defense against Florida's ability to compel registration
and collection of sales or use tax on the subject publications
inasmuch as the physical presence test established by Hess and
followed by Quill will not have been satisfied. Therefore,
given the instant facts as represented to the Department in your
petition and assuming that such facts have been accurately
portrayed and that no other undisclosed facts which could lead
to a different conclusion exist, the Department hereby enters
its finding that both the Organization and Subsidiary would be
immune under the Commerce Clause of the United States
Constitution from the requirement to register and collect
Florida sales or use tax on the express or implied amount
received for publications mailed from outside Florida to Members
or other persons in Florida.

CAVEAT

You are hereby alerted to the fact that the described immunity
enjoyed by the Organization and the Subsidiary under the
specified circumstances, would not extend to the Members or
other persons within Florida who receive the publications.
Without violation of either the Due Process or Commerce Clauses
of the United States Constitution, such persons are fully
susceptible to the 6% use tax levied under s. 212.06, F.S., on
the cost price they pay for the publications received by mail
from out of state, as such publications do commingle with and
become a part of the general mass of property in this state and
are for use or consumption within Florida. Accordingly, the
burden falls on the Members and other persons in Florida
receiving such publications to make a self declaration and
remittance of the attendant use tax directly to this agency by
use of Form DR-15MO, which is available upon request from the
Department.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only

under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Daniel M. Wagner, Jr.
Tax Law Specialist
DW/
Control No. 11062